Consumer spending rebounds in July

WASHINGTON (AP) — Consumer spending grew in July by 0.8 percent, the largest amount in five months. That followed a decline in June and helped ease fears that the U.S. economy is on the verge of another recession.

Americans bought more cars and spent more last month to cool their homes during a heat wave.

The first look at spending in the second half of the year helped give Wall Street a lift. The Dow Jones industrial average rose more than 155 points in late-morning trading. The rise in spending added to positive reports that Hurricane Irene didn’t do as much damage as feared.

Economists said the spending report was a strong sign that the economy rebounded in July after growing at an annual rate of just 0.7 percent in the first half of the year — the slowest pace since the recession officially ended two years ago.

Consumer spending is important because it accounts for 70 percent of economic activity.

July’s spending and income figures “significantly alter the outlook for third-quarter GDP growth,” said Paul Dales, a senior U.S. economist for Capital Economics.

Dales said growth for the July-September quarter is on track for an annual rate of 2.5 percent, up from his previous estimate of 1.5 percent.

Dales noted that the report measured spending ahead of a sell-off on Wall Street in late July and early August, which may force consumers and business to pull back on spending and investment. The stock market has lost 11 percent of its value since July 21.

In July, consumer spending rose at a faster pace than income. That means Americans saved less. The savings rate fell to a four-month low of 5 percent, down from 5.5 percent in June.

The increase in spending was led by a 1.9 percent jump in purchases of durable goods, products such as autos and appliances that are expected to last at least three years. Spending on non-durable goods rose 0.7 percent.

The purchase of services, the biggest spending category, rose 0.7 percent. Much of the increase was because of a jump in electricity use. Many Americans kept their air conditioners running in July to combat a heat wave in most parts of the country.

In a speech Friday, Federal Reserve Chairman Ben Bernanke proposed no new steps to boost the economy. But he did say the Fed would expand its September meeting to two days to allow a fuller discussion.

Investors hope the Fed will announce another round of Treasury purchases after that meeting. But economists said interest rates are already so low that there is little more the Fed can do to boost the economy.